Federal Politics

Negative gearing: Chris Bowen dismisses 'false' attack on Labor policy

Shadow treasurer Chris Bowen has dismissed criticism of Labor's negative gearing policy, insisting the major economic reform would not worsen housing affordability or unfairly hit middle-class investors.

Mr Bowen said the attacks from Treasurer Scott Morrison, the housing lobby and some economists amounted to falsehoods and myths.

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The federal opposition has defended proposed changes to its negative gearing rules, saying they will put first homebuyers on a more level playing field. (Video Courtesy ABC News 24)

"The proponents of the current arrangement say negative gearing increases housing supply. It doesn't; it's a falsehood," he told the ABC's Insiders program on Sunday.

"Ninety-three per cent goes into existing properties and that means, in effect, if [increasing the housing supply is] your policy objective, you've got a failure rate of 93 per cent."

Chris Bowen says Labor's new policy would not worsen housing affordability.
Chris Bowen says Labor's new policy would not worsen housing affordability.  Photo: Alex Ellinghausen

On Saturday, Opposition Leader Bill Shorten announced a Labor government would stop negative gearing on existing homes, limiting the tax write-off to recently built properties and saving the federal budget $32 billion over a decade.

The policy would apply from July 2017 and "grandfather" existing investments, leaving them untouched.

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Mr Bowen invited property investors to "work with us and buy new houses and apartments, to build supply" and said half of negative gearing benefits go to the top 20 per cent of income earners.

"People will obviously be able to continue to invest in existing homes after July 1, 2017. They'll be able to invest in those for rental purposes, but if they want to claim their losses on their property against their salary, they will need to invest in new houses."

Labor claims the policy would create 25,000 construction jobs a year.

In a opinion piece for News Corp, Treasurer Scott Morrison argued that Labor's "silly idea" would force new housing prices up for "first-home buyers and those renting new homes".

Mr Morrison writes that "investors accessing negative gearing will now have only one option in the the housing market, and if you're a first-home buyer looking to buy a new home, you'll be competing with all of them.

"Supply would have to respond to any surge in prices but this could take years, given the delays in our planning and approvals systems. As a result, prices and rents would rise."

It has been speculated that the government is considering a cap on tax deductions, including negative hearing, which would affect more people and gather revenue earlier than Labor's policy. 

The Housing Industry Association says 70 per cent of people using negative gearing earn less than $100,000.

Labor's policy is based on a research paper sponsored by the Labor-aligned McKell Institute, which found that restricting negative gearing to new construction would "provide powerful incentives for increased housing supply" and lead to greater price stability, as well as increased access for renters and new buyers.

Mr Shorten also announced that, under Labor, capital gains tax concessions would be reduced from 50 per cent to 25 per cent. 

This would not change rules on existing assets and the family home and person superannuation would be CGT-free.